This article first appeared in The Edge Financial Daily on February 27, 2019 - March 5, 2019
KUALA LUMPUR: Telekom Malaysia Bhd (TM) expects its revenue for its financial year ending Dec 31, 2019 (FY19) to be “low- to mid-single-digit” lower than what it posted in FY18, as it sees competition continuing to be fierce amid increasing customer expectations.
“We expect the challenges we faced in 2018 to continue, whereby industry revenue is declining, and customer expectations have gone up by a few notches. They want better services, with lower prices,” acting group chief executive officer Imri Mokhtar told reporters at the group’s FY18 results briefing yesterday.
“So TM needs to go beyond just providing connectivity; we need to bring solutions, enabling more digital businesses. To do that, our investment will continue, and invest into digital infrastructure, not just network infrastructure,” he added.
Imri said TM’s capital expenditure for FY19 will be 18% to 20% of the group’s total revenue, and will have a balanced investment into enhancing connectivity and digital infrastructure.
“In the short term, for us, is to continue our investment while managing our cost, so we can still invest despite many challenges,” he said, adding that TM’s cost optimisation initiatives are expected to increase earnings before interest and tax (Ebit).
“Most of the cost savings will be coming from our business operations, across all segments, be it Unifi or TM One, as we simplify business processes. The operation will become leaner,” he said.
Therefore, Imri said TM expects Ebit in FY19 to be higher, but declined to provide guidance on the expected quantum of improvement. TM’s Ebit for FY18 fell 94.1% to RM64.6 million, from RM1.09 billion in FY17.
4Q profit slumps 75% as the group ‘took a big hit’ in 2018
The group’s net profit for the fourth quarter ended Dec 31, 2018 (4QFY18) slumped 74.9% to RM69.66 million from RM277.01 million a year ago, as higher finance cost and lower foreign exchange gain on the group’s borrowings, besides higher tax charges, impact earnings.
Revenue was also lower by 3.5% at RM3.09 billion, versus RM3.2 billion in 4QFY17.
TM group chief financial officer Nor Fadhilah Mohd Ali said out of the group’s RM8.57 billion borrowings as at 4QFY18, 18% or RM1.54 billion of them were US dollar-denominated.
He said the group hedged RM200 million of these US dollar-denominated borrowings, while the remaining were under natural hedge against TM’s US dollar revenue.
For the full FY18, TM’s net profit dropped 83.5% to RM153.15 million from RM929.75 million a year ago, while revenue declined 2.2% to RM11.82 billion from RM12.09 billion.
Imri, who is also TM chief operating officer, said 2018 was one of the most challenging times the group had ever faced, and that it “took a big hit” that year.
Last year was the start of the implementation of the Mandatory Standard on Access Pricing (MSAP), which resulted in lower wholesale network pricing. This allowed Internet service providers in the industry to lower their retail pricing to compete for higher market share.
Nevertheless, Imri said the impact of the MSAP’s implementation has been cushioned somewhat by increasing Unifi subscription, as TM also lowered its Unifi entry prices and increase Internet speed in its retail offerings to keep up with the competition.
“Also do remember that TM is not just [serving] broadband from home and SME (small and medium enterprises) customers, we [also] serve other customer segments too. Through TM One, we serve enterprise and public sector customers, and [through] TM Global [we serve] domestic and international telcos,” he said.
In 4QFY18, TM’s fixed broadband customer base declined 4.2% to 2.23 million customers from 2.33 million customers a year ago, as the increase in Unifi subscribers was not sufficient to offset the amount of customers it lost in other broadband services.
The average revenue per user (Arpu) for Unifi also fell 6.6% to RM184 in 4QFY18, from RM197 in the year-ago quarter, while Arpu for other broadband services declined 2.2% to RM88 from RM90.
An analyst told The Edge Financial Daily that TM is expected to face the full impact from MSAP in stages.
“This [quarter] is not the full impact yet, because there is limited amount of upgrade TM can do for its customers every month, and there is still a substantial amount of people who have not upgraded their package,” he said over the phone.